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Reading Description: Crompton, J. L. (1999). Contracting our services. In Financing and acquiring park and

recreation resources (pp. 228-251). Champaign, IL : Human Kinetics.

Reading Description Disclaimer: (This reference information is provided as a guide only, and may not conform to the required referencing standards for your subject)

228 Financing and Acquiring Park and Recreation Resources

Ver y few organizations are completely self­sufficient to the extent that they generate every­thing they require in terms of goods and services. In this respect, park and recreation agencies are no different from other enterprises. Contracting out shifts responsibility for production of park and recreation services away from an agency's em­ployees to an outside organization that is paid to provide them. The variety of organizations to which responsibility may be shifted includes not only commercial businesses but also non profit entities, such as community groups, YMCAs, Boys and Girls Clubs, and service clubs.

Park and recreation agencies have a long his­tory of contracting out for the production of tech­nical professional services such as architectural and landscape design, comprehensive planning, and construction. Similarly, the contracting out of concessions dates back at least to the act desig­nating Yellowstone as a federal protected area. This act authorized the Secretary of the Interior to lease small parcels of park land where accommo­dations for visitors could be built and operated. By 1880, eight years after Yellowstone was created, it contained seven frontier-type log cabins, a small hotel, horse-riding and pack-train facilities, guides, and stage lines.1 The principle of contracting with

the private sector to produce these types of ser­vices rarely has been controversial.

After the tax revolt movement, the list of contracted-out professional services expanded to include recreational program activity classes and maintenance services requiring highly specialized and expensive equipment that agencies could not afford to purchase. These services included urban tree trimming, equipment maintenance and repair, specialized garden or turf maintenance, and gar­bage collection from facilities. Over time the list expanded further as some agencies adopted a policy of evaluating the cost effectiveness of con­tracting out all non-core support functions includ­ing services such as print shop, concessions, staff training, parking lot, security, accounting, book­keeping and data processing, custodial, nursery, research, marketing, and dispatch call. Finally, as the Indianapolis situation described in "The Contracting-Out Revolution in lndianapolis" indi­cates, the evolution reached a point where con­tracting out in some agencies was considered for all services including core functions such as park maintenance and recreational facility management.

The major advantage agencies perceive from not contracting out and retaining direct delivery is control. They are able to control decisions, such

. ,: The Contracting-Out Revolution in lndianapolis

When a new park and recreation director was hired by the recently elected mayor in lndianapolis, his instructions were to reduce costs and improve service quality. Contracting out was a primary tool for achieving this. After two years, the number of full-time equivalent employees had fallen from 770 to 236, and the net operating cost of the department had been reduced from $22 million to $19 million. The fall in net operating costs was not commensurate with the reduction in employee numbers because the agency still had to pay for services that were contracted out. Further, operating savings were reinvested into renovating deteriorating faci I ities. At the same time, the quality of park and recreation services improved substantially on all objective measures including customer-satisfaction surveys, mystery.:..shopper surveys, and number of complaints.

One-third of the mowing work was contracted out to several different contractors. Their work was monitored by private inspectors who were hired to measure it against performance standards specified in the contracts. The agency's employees were efficient in mowing large open park areas that required large equipment and allowed them to stay on the machines for relatively long time periods. They were inefficient when they had to constantly travel, loading and unloading equipment, to maintain relatively small neighborhood parks. Hence, it was these smaller facilities that were contracted. The contractors were typically small, local, landscaping firms whose main source of business was mowing people's yards. The department previously mowed on an 11-day cycle in the summer, but the cost savings from contracting out enabled all mowing to be done on a six-day cycle. Other savings were invested in purchasing new equipment to replace the inefficient 1 0-year-old equipment typically being used. Much of the savings came from the contractors' not having to pay the department's unionized employees' relatively high overtime rates. As a result of contracting out, the department's parks equipment inventory was reduced from 400 pieces to 200 pieces.

Contracting Out Services 229

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as price, scheduling, service quality, and shifts in service priorities, without having to negotiate with a contractor about every decision. If the service is profitable, there also may be a belief that direct delivery maximizes revenues because all profits are retained by the agency rather than shared with a contractor.

On the other hand, advocates of contracting out point out that in areas such as recreational activity classes independent contract instructors will strive to build their clientele. Most of these instructor contracts guarantee instructors a per­centage of enrollment fees (typically, 60% or 70% to the instructor and 40% or 30% to the agency). Thus, instructors make more money as classes increase in size . Further, lack of demand results in cancellation of a program and no remuneration to the instructor. These arrangements enable an agency to offer virtually any program for which there is a demand, even highly specialized activi­ties, without tax support .

Contracting out frees agency staff resources and dollars for other purposes. It may not only save money, but also remove the headaches and hassles associated with day-to-day management. In the context of concession operations, for ex­ample:

scheduling of hourly part-time employees, purchasing perishable foodstuffs or imported souvenirs, determining what stands are open, determining whether the sanitation policies

are enforced, and determining who might be stealing cash are all items that many agency managers do not want to oversee even with a qualified concessions manager on staff (p. 214).2

Further, agencies do not have the freedom to establish autonomous purchasing and personnel procedures, which a contractor can do. This free­dom is especially important in revenue-producing services in which success is often dependent on an ability to respond rapidly and efficiently to changes in market volume and preference.

Four conditions have been identified that gen­erally must be satisfied before an agency will seriously explore the feasibility of contracting out a service:

1. The agency is under serious fiscal stress.

2. It seems likely that substantial monetary savings could accrue from contractingwith­out reducing quality or level of services.

3. It is politically feasible, given the power of the service's constituencies, i.e., both employees and client groups.

4. Some precipitating event makes it im­possible to continue with the status quo.

The first three factors have been widely recog­nized, but in many instances, it is the fourth factor that is indispensable to successful implementa­tion of contracting.

230 Financing and Acquiring Park and Recreation Resources

The mere availability of large and much­needed savings by privatizing is necessary but by no means sufficient to assure adop­tion of this approach. Generally, some other factor must be present that elected officials can seize as an opportunity to create the political consensus that makes privatization feasible (p. 256).3

In chapter 7, the potential advantages of com­mercial enterprises were identified to be availabil­ity of private capital, specialist management ex­pertise, reduced labor costs, adaptability to scale of service, and reduced liability risks. Any or all of these advantages may contribute to an agency's decision to analyze the feasibility of contracting out a particular service.

There are some inherent characteristics of park services that make them particularly appealing targets for contracting out."1 First, much park main­tenance work requires only moderately skilled employees who do not require extensive training or high levels of education. Often contractors have lower wage and fringe benefits than public agencies have for these personnel partly because they are less unionized and because relatively rapid turnover tends to keep commercial rates at the low end of the scale. Second, there are usually several companies with the capacity to offer these services, and, thus, more competition for con­tracts occurs. Third, the services are tangible (a certain number of trees trimmed or acres mowed per service cycle), so agencies are confident of being able to measure contractor performance and ensure quality levels. Finally, some park ser­vices, such as tree trimming, require expensive capital items that an agency may underutilize but that contractors may be able to spread over mul­tiple contracts with other entities.

As the number and variety of service contracts has grown, the controversy associated with con­tracting out has grown. It tends to be particularly acrimonious when services have had a long tradi­tion of being delivered directly by the agency and when management of recreation services beyond activity classes is involved; these more directly impact client groups than operation and mainte­nance functions do, and developing specifications for them is more difficult. The conclusion drawn from two decades of controversial experience with contracting out in this field is that contracting out is likely to be successful in selected contexts when it is applied thoughtfully and is properly devel­oped, implemented, and monitored. It is neither

the panacea advocated by some politicians, con­sultants, and professionals nor the recipe for disas­ter pronounced by others. Indeed the uniqueness of situations in different communities makes it likely that the contracting out of a given service in one community may be a success while in another community it may be a failure.

Many illustrations in this chapter report success­ful contracting-out experiences, but sometimes this form of privatization is not successful. This is illustrated in "A Negative Contracting-Out Experi­ence," which describes one facility's bad experi­ence with contracting out and offers some insight into why this strategy may fail. In the context of horticulture, similar reservations were expressed by the director of an internationally renowned arboretum in Philadelphia:

Private contractors cannot resist the temp­tation to put routine jobs such as mowing in the hands of the cheapest labor. But these people know nothing about gardening. With their mowers they can do permanent dam­age to trees or chop down bulb foliage before the bulbs have fully matured. You only see the damage when it is done, and some of it is irreparable (p. 11).5

One of the consequences of the increased ten­dency to contract out has been the stimulation of new specialized businesses. As the vignette in "Providing Lifeguards: A Company Success Story" on page 232 illustrates, it offers a new type of employment opportunity for people in parks and recreation who possess specialized knowledge and an entrepreneurial temperament.

This chapter develops a systematic process for making decisions related to contracting out. The process illustrated in figure 9.1 on page 233 con­sists of six main stages. The first issue is the potential for cost savings because this is the pri­mary reason for contracting out. If the costs of contracting out are estimated to be at least 20% lower than those currently incurred by the agency in delivering a service, then the analysis should proceed. The second stage is to confirm that alter­native producers of the service are available be­cause, without them, the issue is moot. Third, much of the controversy in a contracting-out debate usually revolves around the issues of displacement of existing personnel, control of prices, and equity. If any of these three issues are not resolved, then the acrimony and level of political agitation may be strong enough to cause a contracting-out

Contracting Out Services 231

' '" . . .

·.�:Negative Contr,,acting-Qut Exp�;rieoce' �:.�·_:;,:� ':.:: ··:·'<\(, .. :),, ··.··i::i .. ::.: ;,:'i ::i'� 'Thenewcityre�.�eationalc�� -t�rwasaomiprehensivebulldingwithtyVOgymnasta�basketbaii<;Quas, fitn�ssfacilitie�, sauna, thre�syvimmingpo?ls, aerobicroorns,and.�fhildren's nurs�ry� !ncorpo�C\t�d

. ()Is() were alar:ge. cafeteria.a.ndkitchenfaci.lities tosE!r\(icethe lar�e;ryumber of c�f'}ter users. T�·ese

catering facilities were designed to a high .qual ity. ltyv�s regard�(] .�s essential thatthey provided a s:rvice commensurate with:thatoffere�rn the remainde.�ofthebuil�i[ng,viz. ofthehighestpossible s:t:�ndards. In a�dition, theseJaci.lities were required to produce a netoperatingpr()fit. ..... . · .. • . . •• . ttwasdecidedbeforethetenteropeningthatthecateringwouldbecontractedout.Asma.Jlfirm o/�s_given athn�e-year contract based upon· the follovying terms:

·

The firm woul.d have ex<;lusive rights for all catei'ing in the buTiding . • They.would provide a service in atcordancewitH.an .. agreement drawn'up.

Theywbuld pay the cpuncil a 14% return on �,�bss receipts� .

The council would pay for gas; electricity, w�tert replac:�rnent of fixedj:�quiprnent, .. ;and

general·maintenanc:e. . . . , .,, ,

.The assistantdirectorofthecity's parkand recreatibh.departmentrecalls the sequenceofE!,v�lits th* followed:

·

; Things didn't go in accordance with our wishes and in consequence we did not enjoy three .

. totally successful years: ltrnay be argt1ed that the .contract should have been terminated, but

··that ubiquitous word ''teascmable"seemedtothwartus Q.t every turn. Who does define what ; is a "reasonable" returni what isa "reasonable" service, and what are "reasonable" prices?

·:The major benefits whichqid.m.aterialise included: • No direct involvernentwiththe service. • A "reasonable" fi11CJ.I)Cial return which reached $20,000 in the final year.

The drawbacks which be<:_:�me evident were: • Remoteness of decision makers. The on-site managers (andthere were eight during

the contract period)had little authority andttherefore, decisions were a long time forthcoming and changes to meet emerging needs were equally slow.

• The company operated the section with littleregard.to.service, but with emphasis almost exclusivelyon profit (although I believethetwocan and should go hand in hand).

• Avirtualignoranceofthe special catering requirements within a recreati.oncenter: After three years and following a number of "head to heads" with the company, it Was

· decidedtoreadvertise theJranchise. The idea ofseif�catering at that stage wasvetoed bythe Counci I . Since we had had unsatisfactory results with Contract Caterers,· a "Management" caterer was appointed.i .lt was impressive to hear ()f returns o($40,000, use of company resources and expertise, exercising control without direct involvement etc.; but in realitY things never wentrightfrom the start.

The company seemed to lack an understanding of the clientele who use a recreation centerand the whole organisation appt;ared to be swampedpybureaucracy (and they.c:all LocalGovernmentbureaucratic!)rneaningvery iittlewasachievedat"the sharpend."Whllst it is fair to say thatstandarcjsdid improve, thefinancialresultswere disastrous.Thefirstyear's trading yieldeda "proHt''of$1 0,000, whilst the secondyear ended with the Council lcJsing $4,000. Whilst the company to their credit offered to recompense the Council this figure against their managerntJnt fee, dearly the writing was on the wall.

2.32· Financing and Acquiring Park and Recreation Resources

proposal to be abandoned. Stage four is soliciting input from all impacted stakeholder groups, and only if there is evidence of widespread support is the proposal likely to proceed.

Fifth, key decisions to be made in formulating a contract include how to safeguard the agency against the contractor's failing to deliver the ser-

vice; using the invitation-to-bid or request-for­proposals approach for selecting a contractor; choosing a fixed-price, commission, or fixed-price­with-incentives type of payment option; determin­ing the size and scope of the contract; and ascer­taining the content details that should be included in the contract.

Are cost savings likely?

Are alternative service

producers available?

• Yes

Can the central sources of controversy be resolved? - Displacement of existing

personnel - Control of prices -Equity

Yes

Is the public input generally supportive?

• Yes

Formulate a contract that involves - Safeguarding against contract failure - Selecting the ITB or RFP approach - Selecting type of payment option - Determining size and scope of contract - Determining contract content

Yes

Can the contractorls performance be adequately monitored and evaluated?

Sign the contract

Contracting Out Services �J�'

No

No

No

No

Do not contract out I

No

No

Figure 9.1 A systematic approach to making decisions about contracting out. /TB, invitation to bid; RFP, request for proposals.

The sixth stage is monitoring and evaluating the contractor's performance to ensure that the specified standard of service is delivered. The chapter concludes with a case study illus­tration of how one park and recreation agency integrated the principles espoused in the chap­ter when it planned and implemented a major

contracting-out program for park maintenance work.

Individual agencies are likely to have developed adaptations of this strategic approach. "Specific Tasks Undertaken by One Agency To Implement Its Contracting-Out Program" gives an illustration of one such variation developed by the Los Angeles

234 Financing and Acquiring Park and Recreation Resources

Specific Tasks Undertaken by One Agency To Implement Its Contracting-Out Program

I. Prepare contracting plan.

A. Inventory department activities.

B. Determine if legal to contract.

C. Determine if possible to contract.

D. Prioritize and develop plan.

E. Assign in-house task force to complete tasks.

11. Prepare performance standards and monitoring plan.

A. Define required services.

B. Gather data.

C. Determine economic value of activities.

D. Develop performance requirements.

E. Write performance standards.

F. Design monitoring requirements.

G. Write monitoring plan.

Ill. Conduct contract solicitation.

A. Determine method of solicitation (invitation to bid or request for proposals).

B. Circulate draft solicitation documents.

C. Prepare vendor and advertiser I ist.

D. Conduct public advertisement.

IV. Conduct cost analysis.

A. Prepare in-house cost estimate.

B. Submit in-house cost estimate to finance staff.

C. Submit in-house cost estimate to department head.

V. Evaluate and select contractor.

A. Select evaluation team.

B. Conduct solicitation evaluation.

C. Determine if service will remain in-house.

D. Conduct pre-award survey.

E. Select contractor.

VI. Negotiate and award contract.

A. Select negotiation team.

B. Make preliminary selection.

C. Negotiate contract.

D. Send draft and checklist for department sign off.

E. Send final contract to governing body for approval.

VII. Implement monitoring program.

A. Prepare monitoring evaluation schedule.

B. Conduct monitoring and record observations.

C. Document unsatisfactory performance.

D. Take appropriate action.

From Ralph 5. Cryder. One Approach lo Contracting Out Services. Parks and Recreation February 1985, pages 40-41, 64. Copyright© The National Recreation and Park Association. Used by permission.

County Department of Parks and Recreation for implementing its contracting-out program. This agency was a pioneer in contracting out services in this field. The list identifies seven internal tech­nical tasks that the agency undertook and the key elements that are needed to perform each task. This list does not incorporate the broader strate­gic issues that are considered in figure 9.1.

Analyzing the Potential for Cost Savings

The most frequent motivation for contracting out is a desire to improve efficiency. This entails either reducing costs while holding quality at the same level or improving level of quality while costs remain constant. As the lndianapolis case de­scribed in "The Contracting-Out Revolution in Indianapolis" indicated, the magnitude of efficient improvement may be substantial. Another ex­ample, given in chapter 18, reports that anon profit organization that was contracted to operate five public golf courses for the city of Baltimore was able to reduce the number of employees from 120 to 60 while simultaneously improving golfers' sat­isfaction levels, increasing the annual number of

Contracting Out Services 235

rounds played by more than 90%, and saving the city $5 million over a 10-year period. Similarly, the case described at the end of this chapter reports that over an eight-year period, the parks division in Kansas City reduced its mowing costs from $43.50 (which was the cost of direct service) to less than $17.30 per acre for each mowing cycle on 1,600 acres of contracted-out park land, saving the city more than $575,000 each year. Possible rea­sons for these types of cost savings are summa­rized in "Reasons Why Contracted Service Deliv­ery May Be Less Expensive Than Agency Delivery."

The only way to determine if there are identifi­able efficiencies that could be rectified by con­tracting out is to undertake a comparative cost analysis. In some jurisdictions, such cost compari­sons are mandatory. For example, almost all fed­eral agencies are required to do them and to contract out services if the expected savings exceed 10% of the personnel-related costs of per­forming the work in-house. At the same time, agencies that want to assume functions currently performed by a contractor have to demonstrate that they are able to save at least 10% on the cost of personnel and 25% on the cost of facilities and materials that the government would have to begin

· ·H��.$9n�1W�Y ��tra����.��rM!��j,q�!��i:Y ·M�Y Be;�;ess ·E�peosiv.�··:fJI�(ln. Ag�l'l(Zy••.···�qli·yery '· · ·' ' · · ... · ,;: � {. _ j · · .. : · · .. . ; . . .. ; .. ···" · ' .. · : ; . : .. Ll � · · ·; ;· :,� f} ·:�· ;:-; , , .... �mpl?yo�l�··persons'n�eeedand��y onlymar��t-rat� �a�e�. .

.�mplpy part .. time and' ��mpo�ary wo*ers to •. coy�r peak per!q�s . . 1�eward e��loyees ba���· on perlq;rcy;'anc:e. May prov�de less-ext�r:l�Iye fringe 'P���fits pac:KfH�es; Hirefor.skillsas ne�dea.··

..

-·f<Aay hav�[ l)�tter rnana�elllent infprfi)ation. : Are

.·•willing]otake···ri$�f . '

. . ••. ...• ... •· •• •· · · ·· .. •• • · · ···· ·· • : ·.Trad� .·· 9f(trre use of la��rversus equlp�ent. ' . ' . '" , ',;• ; .. ; RetainohhLequipmedtthatis.used, · ·

'''spreadeqdi.pment��$ts!�ver many}obs; .. ·Rent spedializ�d pieq�$.9f equlpme�tas n�eded� :·�.Trade off p�rchased aM� il.e�sed equipment. '; , : Not req�Jreti to spend,

·bUdgeted f� nds by the �ri� ·a new fiscal year wit�o�:t lpsing then:J�

· ·

Eligible fcir tax tre<:JlttsPon equ ipme�t purchase� ' equipment.

' '

. Ad�pted from lhternati<:mal cftyManagement Assbdation. "'·-··''··''"'"'',-,.-"··-- · th�. 90s:Aiternative Approachesidr.�ocal Governments. International City.Management{\ssociation: DC .1..989.

236 Financing and Acquiring Park and Recreation Resources

providing. Presumably, this 10% margin was se­lected because it was deemed adequate to cover the agency's personnel costs of administering and monitoring a contract. In the author's view this difference is too marginal to justify all of the politi­cal, human, and organizational upheaval that of­ten accompanies a shift to contracting out. As a rule of thumb, experience suggests that overall cost savings should be at least 20%-without con­sidering the cost to the agency of monitoring the contract-to make contracting out worthwhile.

The sources of costs that should be included in comparisons are identified in "Cost Sources Used in Comparison of Agency and Contracted-Out Delivery." When making comparisons, some agen­cies fail to include costs for contract preparation, administration, monitoring, and renegotiation. Similarly, the cost of contractors' using in-house facilities such as storage sheds, maintenance shops, or equipment may be inadvertently omitted. Such omissions make the contracting-out option appear more favorable. On the other hand, when

Cost Sources Used in Comparison of Agency and Contracted-Out Delivery

Agency Costs 1. Direct provision

• Personnel (number and type). Costs should include salaries, wages, fringe benefits, overtime, and cost-of-living trends.

• Services and supplies, such as gas, oil, phone, paper, and electricity (costs per unit).

• Debt service and capital outlays and equipment.

2. Support (for direct provision)

• Personnel (number and type). Costs should include salaries, wages, fringe benefits, overtime, and cost-of-living trends. Only those positions that would be eliminated or reduced by contracting should be included.

• Facilities and equipment (additional requirements only and incremental costs).

• Services and supplies (gas, phone, and electricity).

3. Indirect costs associated with items 1 and 2 • Contract service.

• Departmental administrator.

• Operating division administrator.

Contracted-Out Costs 1. Contract

• Cost of purchasing services from a contractor.

2. Support (preparation and monitoring of contract)

• Personnel (number and type). Costs should include salaries, wages, fringe benefits, overtime, and cost-of-living trends.

• Facilities and equipment (additional requirements only and incremental costs).

• Services and supplies (gas, phone, and electricity).

3. Other adjustments

• Sale value of government equipment if government chooses co11tracting.

• Local government's employee severance costs.

• Contractor's use of agency facilities or equipment.

Adapted from International City Management Association. Service Delivery in the 90s: Alternative Approaches for Local Governments. International City Management Association: Washington, DC. 1989.

costing direct delivery by the agency, fringe bene­fit items such as sick leave, vacation time, and retirement plans are sometimes omitted. On occa­sion, contractors' wage scales may be as high or higher than those of a park and recreation agency, but fringe benefits are likely to be 12% to 15% of salary compared with 30% to 35% for agency em­ployees. Hence, accurate computation is critical for there to be a realistic cost comparison.

A common source of error in cost comparisons is a failure to include all of an agency's indirect and overhead costs in the calculations. Many compari­sons do not extend costing beyond the direct costs and fringe benefits of personnel, immediate support staff, and materials associated with pro­ducing the service. Figure 9.2 illustrates why this will result in a substantial underestimate of the real costs involved. Determining the real costs of services has not been required in the past, and few park and recreation services have a cost­accounting system that enables indirect costs to be determined easily.

Figure 9.2 indicates that typically there are four layers of cost that should be included in determin­ing the real cost of a park and recreation agency producing a service. Central service functions may include executive administration of the juris­diction, purchasing, accounting, budgeting, per­sonnel, and data processing. A park and recreation department may benefit from each of these cen­trally supplied functions, so a proportion of their operating costs should be attributed to the agency. A park and recreation department's indirect costs are those associated with the agency's administra­tion, such as the director's office, planning, and administration. The costs of these functions and the costs of central services have to be equitably

Figure 9.2 Different types of costs incurred in deliver­ing a park and recreation service.

Contracting Out Services ��7

allocated to each of the agency's operating divi­sions. Finally, each operating division's costs (in­cluding the share of central and departmental costs that it has been assigned) have to be allo­cated to each of the services offered by the divi­sion. Thus, accurate costing goes beyond the di­rect costs associated with a service to identifying the three layers of indirect costs and allocating them to successively lower echelons of the agency to develop a true service cost. All of these indirect costs will be included in bids that contractors submit because only by covering all costs can commercial enterprises remain solvent.

Since most park and recreation agencies do not have access to a formal cost-accounting system that accurately identifies indirect costs, they fre­quently have to resort to cost finding, a less­rigorous alternative. Cost finding involves taking available financial data and recasting and adjust­ing it to derive an estimate of a service's costs. It extracts data from budgets, analyzes detailed trans­actions (e.g., payroll records, invoices, contracts), reviews cost-accounting data that may be avail­able from other agencies and interpolates from it, and conducts staff interviews, both from within the department and from central services, to as­certain the best estimates of these costs. Data from multiple sources is collected, assembled on worksheets, and analyzed to estimate individual service delivery costs.

Ascertaining the real costs of producing a ser­vice and comparing them with the cost of con­tracting out is in itself a valuable exercise. It pro­vides the park and recreation agency with a benchmark or yardstick against which it can mea­sure the relative efficiency of its operations. In­deed, it is likely to be the first time in many agencies that elected officials, managers, and employees become aware of the true cost of a service. For this reason, managers and employees should be given the opportunity to show what they could do rather than what they are currently doing. This may be done by giving them a mini­mum of six months, and preferably up to one year, after these data become available to try to reduce the cost of their operation before making a deci­sion to contract out a service.

Availability of Alternative Service Producers

After identifying potential cost savings, an agency's next logical step is to find out if a number of alternative, qualified service producers are avail­able to bid if work is contracted out. The larger the

238 Financing and Acquiring Park and Recreation Resources

pool of potential bidders, the more competition that is likely to be generated, and the greater the efficiency increases that are likely to emerge. Typi­cally, in the park and recreation field, there is a strong relationship between size of contract and number of bidders, with smaller contracts secur­ing more interest from local contractors. Clearly, work put out to contract should be packaged to bring it within as wide a range of contractors as practical. Thus, it has been suggested:

If a community is small or isolated, local officials may doubt whether there are any local providers large enough to deliver the service. But for parks and recreation ser­vices, many types of providers are poten­tially available, including neighborhood or condominium associations, school districts, nonprofit organizations, sports leagues, and arts organizations. Dividing a larger task into smaller pieces can encourage small providers to contract with the local government. Park maintenance can be broken down into tree trimming, mowing, and horticulture; or the area to be served can be split to encourage small providers to participate in contracting (p. 104).6

Alternative service producers may include other public agencies as well as business and nonprofit organizations. The kinds of pro-active efforts that may be required to create a pool of bidders are illustrated in the Kansas City case study at the end of this chapter. Although standard official adver­tising announcements may attract large contrac­tors, it is likely that a more aggressive outreach effort will be needed to reach small contractors, who often submit lower bids. These outreach ef­forts may extend to training workshops that offer small businesses advice on how to submit effec­tive bids; on city procedures; on reporting require­ments; and on how to complete the bidding docu­ments, which are often lengthy and formidable to those lacking experience with them. An agency's ability to solicit bids will also depend on reputa­tion gained in the treatment of its past contracts and contractors, including fair and timely pay­ment and smooth resolutions of differences in contract interpretation.

In the Kansas City case, the strenuous effort made to attract the interest of a large pool of qualified contractors invariably resulted in a rela­tively large contingent attending the pre-bid con­ference for qualified bidders. The superinten­dent of parks described one of the benefits of

having a large attendance at the pre-bid confer­ence:

We'll have a room full of contractors and we'll lay out last year's bids and they're all looking around the room at each other and saying, "Wow, there's a lot of people here and the prices are low, so I probably shouldn't go up much" (p. 20).7

Central Sources of Controversy

This section discusses three issues that are likely to be controversial if a decision is made to con­tract out an existing service: displacement of the existing labor force, control of prices, and equity. If any of these issues remains unresolved, then it is possible that, irrespective of the potential cost savings, the level of political opposition will be sufficiently strong to cause abandonment of the proposal to contract out a service.

In considering each of these three issues, the central task is to arrive at a compromise in con­tracting out that is fair to all stakeholders in­volved: that is, fair to the taxpayer who pays for the service if it remains subsidized; fair to em­ployees who have invested their careers with the agency; and fair to service recipients who have expectations about price and standard of quality.

Displacement of Existing Personnel

It has been estimated that approximately 40,000 people in full-time and permanent part -time posi­tions are now in the private sector doing work that was done in-house by public park and recreation agency employees two decades ago.8 Hence, dis­placement of personnel has emerged as a major issue associated with contracting out. Contract­ing out often is perceived by senior agency man­agers and elected officials as being advantageous because it permits them to sidestep bureaucratic barriers that cause direct delivery to be inefficient. These sentiments are likely to be particularly prominent in larger jurisdictions where the exten­sive system of checks and balances needed to ensure control and accountability of funds may substantially impede the efficiency and effective­ness of service delivery. Contractors do not have to follow civil service rules and regulations in hiring, promoting, termiJ?.ating, or disciplining employees and, thus, can more easily reward em­ployees for good performance and dismiss them for bad performance. Hence, a central reason for sidestepping the bureaucracy may be to make

changes in organizational structures, personnel, and remuneration systems.

If a decision is made to contract out, then what happens to existing employees in the agency who currently perform the service function? Several questions arise.9 Who gets jobs with the new man­agement? Are the current workers protected? What do collective agreements require? Should staff be invited to bid on the work? Even if the efficiency case for contracting out is convincing, the agency must alleviate adverse political and human conse­quences of the decision and the potential negative impact on staff morale. Indeed, if the displacement issue is not resolved satisfactorily, the merits of contracting out likely are to be forgotten in the recrimination and bitter arguments over job losses. Displaced employees often garner considerable sympathy from both citizens and elected officials, and their displacement can become a volatile political issue. Analyses demonstrating the case's merits are not likely to impress individuals whose job security and status are at stake. Further, there may be an adverse impact on the morale of other employees. They may become cynical and less committed because they now feel exposed to the threat of termination or because they perceive that their future career ladder and prospects for advancement within the field have been curtailed.

Employees are likely to make intense efforts to save their jobs through internal opposition, civil service rights, appeals to conscience, and direct political activism. If they are supported by a union, then the opposition may be particularly fierce. Unions' interest extends not only to protecting the best interests of their members but also to pro­tecting its corpus because union jobs in an agency may be replaced by non-union jobs with contrac­tors. The potential politicization of the issue by unions is exemplified in the advertisement shown in figure 9.3, which appeared in the Toronto Globe and Mail.

Underlying this political problem, there is the human and moral dimension of how to treat dis­placed employees. In many cases, the decision to contract out is not a reflection of inadequate em­ployee performance but rather a recognition of wage costs, technological advances, or the cost of new equipment.4 Personnel may be good em­ployees trapped in a bad system: people who are as dedicated and talented as their peers in the private sector but whose effectiveness and effi­ciency is inhibited by archaic bureaucratic proce­dures within which they are required to operate. It may be more efficient to contract out; however, if

Contracting Out Services 239

these employees have served the agency well for many years, then they have earned the right through their dedication, commitment, and loyalty to be treated fairly.

Thus, for political, humane, and moral reasons, both agencies and contractors are likely to want to do the right thing for people who are to be dis­placed. Strategies they may elect to achieve this include the following:

• Offer a golden handshake or severance pay to employees if they volunteer to resign from the agency.

• Require contractors to hire employees at existing salary levels. This may cause their bids to be higher, but over the long term, voluntary attrition or termination for poor performance will enable rationalization to take place.

• Reassign employees to positions elsewhere in the park and recreation agency or in

;; sil��t L�e;;FitirR>'· Raipb�w Fall�� Sturgeb� '�ay, Saubl� fal�s • . . ·

. . t� Ptifk:s so(ar fia;ve b��l1 tiented,Qlii� apd iCs jll$tthe start. ·. ·• . . . . . . ... .. . ...• , , , �}!en parks are tr�sed,. worJ.c�rs 1g$e: Job�j •. st�de�ts 19�� work ex;periertce,; 9onununiti�s.spffer. . . . . . . .

· ; Will coriun�rcia} 9perators keep up the park e!lvi�on­m.en:�,. provide; security, keep campingfees at affQ.rdable levels? · " ' · · · · ·

· · · ··· .···. ·

'o/� .paid fpr a p��s system appessible to �LJp ,!)lakes nq seJ:i�e t<> han�Hio;verto private busi:Q.ess.. . .

, .. ,,, . ·· .. • ' ,, Mik� Hatris, 1VIPP

• ·Mif!iSter of Natural Resources . .Queen's Parlf · .·

Toroiito •;Nf7AlW3 •· , '·. : . : .. . . ,.: · · ' . .,:-,

·rj'· .· ...• ;iJ:Htflpi�!OP.f�i! rentalof���rpa(Jss. Spt.Jhsored by Provincia! Parks Worke�s. OPSEU

Figure 9.3 A newspaper advertisement paid for by a labor union protesting a decision to contract out.

Copyright ©1985 Ontario Public Service Employees Union. Used by permission.

240 Financing and Acquiring Park and Recreation Resources

other departments of a jurisdiction for which their skills are appropriate. This frees the contractor to pay market rates and hire new employ ees, and savings should emerge from this approach.

• Make displaced staff redundant, but require contractors to interview and appoint from all those affected. This makes it likely that good employ ees will be hired again.

Control of Prices

The second controversial issue is likely to be pricing. As an alternative or complementary strat­egy to cost reduction , a contractor's financial goals may be met by generating additional revenues from price increases. Whereas cost reduction fo­cuses inwardly on the agency and its structures, revenue generation focuses outwardly on partici­pants' ability and willingness to pay for services. An agency has to decide whether to retain control of prices, and if it does retain control, it must decide whether it should authorize a price in­crease. Its response may vary. For example, an agency deciding that at-risk adolescents are a top service priority may not permit a contractor to raise prices for those services. However, there may be a willingness to sanction such increases if they are associated with improved services for older adults or if the agency is under pressure to reduce a large operating deficit.

The pricing issue requires making a fundamen­tal strategic decision regarding the question: Does the agency want to delegate control over revenue to the contractor? If the answer is affirmative, then the contractor will benefit from higher revenues created by increased patronage or higher fees. In this case, the agency would transfer all financial risk to the contractor whose profit would depend not only on cost control but also on optimizing patronage and fees. Alternatively, the agency could opt to retain control over price and not authorize a price increase. This choice may be preferred if there is evidence that social benefits would likely be diminished if fees were not controlled. These decisions will influence the amount of revenue that the contractors offer an agency in their con­tract bids. Generally, agencies that seek to keep prices low are likely to find it more difficult to embrace contracting out than agencies that are more tolerant of higher prices.9

Contracting out may offer a means of encourag­ing revenue generation because people are accus­tomed to businesses changing the market rate; however, there is often an expectation that a park

and recreation agency will subsidize the service and charge a relatively low price. If an agency raised prices to market level, it likely would be strongly contested, but such actions taken by a contracting business may be less controversial. This is exemplified in "A Contracting Organization That 'Creamed' the Market," which is discussed in the next section.

Equity

The impact contracting out has on equity is the third controversial issue to be addressed. Effi­ciency gains are likely to be achieved easily if a contractor is allowed to confine service delivery to relatively responsive target markets. The modus operandi of business is to target responsive mar­ket segments and ignore nonresponsive segments. However, park and recreation agencies are man­dated to service all segments of the community, especially the disadvantaged, often the most un­responsive. Indeed, it has been argued that in prioritizing indicators of an agency 's performance, "primary concern should be given to equity, then to effectiveness, and finally to efficiency " (p. 168) . 1 0 Service delivery to specific groups may be defined and mandated in the contract. However, if incen­tive remains for the contractor to avoid servicing higher-cost target segments, it places a substan­tial burden on contract monitoring.

This contractor preference has resulted in the emergence of the term "creaming" because agen­cies have noticed contractors are most interested in services that are easy to deliver to users who are easy to serve, and they tend to ignore services that are more difficult to deliver or customers who are difficult to serve.9 Thus, for example, contractors prefer to maintain grounds in neighborhoods that do not have graffiti and vandalism problems. A contractor specializing in the management of rec­reational centers confided to the author that his company had three criteria to be met before the company would consider contracting:

I . The agency's elected governing body had to be philosophically supportive of con­tracting out.

2 . The recreational facilities being contracted had to be relatively new and high quality.

3. The target market had to be relatively affluent.

Although creaming has a negative ring to it, the responses by park and recreation personnel to the example in "A Contracting Organization That 'Creamed' the Market" suggest that this connota-

tion may be misleading. In this case, contracting out resulted in extensive sponsorship resources being made available, ensured that those who had the ability to pay market rates were not receiving subsidized service, and freed agency resources to focus on serving other target markets.

Equity is concerned with who gets what. If contracting out resulted in creaming without agency resources being available to service other segments that previously had received a service, then equity is likely to become a contentious issue. This may often occur inadvertently as the following example illustrates.

An agency in southern California operated a park that contained a lake with a beach for swim­ming, which was popular with local residents. Visitation was approximately 200,000 people per year, revenues totaled $400,000, and operating expenses were $500,000. The agency was ap­proached by a commercial water park company that offered $500,000 each year to lease the area

Contracting Out Services �)

for a 10-year period. Being under substantial political pressure to reduce its operating deficit, the agency accepted the offer. Visitation to the commercial water park was also about 200,000 per year. The agency transformed a $ 100,000 annual deficit into a $500,000 surplus (a net gain of $600,000) , which is a substantial gain in effi­ciency. However, the equity issue was not ad­dressed. Were the water park visitors who paid $ 15 admission to the water park the same people who paid $2 admission to the lake swimming and beach area? It seems unlikely. If not, what hap­pened to the original visitors? Were there similar opportunities near by that they could use, or was this experience now no longer easily available to them?

Soliciting Public Input Contracting out threatens the status quo and, hence, is likely to be controversial and fraught

242 Financing and Acquiring Park and Recreation Resources

with infighting, interest group politics, and maneu­vering. Users of services will be concerned about price and quality implications, while employees will be concerned about their jobs . In addition, some of these stakeholders, as well as some man­agers and elected officials, ideologically and philo­sophically may be opposed to the principle of privatization and its contracting-out manifesta­tion.

Hence, a community needs plenty of time to consider the prospect of contracting out, the rea­sons for selecting this option, and opportunities to articulate reservations . Before they can pro­ceed with contracting out, the agency and elected officials have to respond to the concerns and satisfy them to the extent that there is general community acceptance and support for contract­ing out. The set of impacted stakeholders from whom input should be solicited may include

• agency elected officials, managers, and employees;

• unions and professional associations;

• athletic and cultural associations;

• non profit organizations, such as the YMCA;

• operators of commercial park and recre-ation services;

• community groups and service clubs;

• taxpayer action groups; and

• the general public.

Only if the views, opinions, and concerns of these groups are heard and addressed will they have ownership in the contracting-out decision and support it. To proceed in the face of strong adverse reactions, especially if they come from employees and unions, is likely to be unwise. If these people are not committed, it is relatively easy for them to undermine a contracting-out decis ion in a host of overt and subtle ways. Fur­ther, if there is substantial opposition and political infighting, some potential contractors may not submit bids in order to avoid the negative reper­cussions of being the focus of a controversy.

At the end of this stage, managers have to decide on whether to proceed. Figure 9.4 shows a tool used in some agencies to summarize the pros and cons of contracting out a service. It provides a useful overview and a starting point for a discus­sion leading to a final recommendation. A manual with this summary chart gives guidelines on crite­ria to use when scoring each of these nine decision factors.

Formulating the Contract After a decision to contract out has been made, an agency has to decide on the form of contract it wants to offer. This involves discussion of five issues that are presented in this section: safe­guarding against contract failure, selection of an invitation-to-bid or request-for-proposals ap­proach, types of payment option, size and scope of contract, and contract content.

Safeguarding Against Contract Failure

Before proceeding with development of the con­tract, a decision has to be made on how the service will be delivered in the event of contractor failure. Although most contractors perform effectively, there is a need to safeguard against disruption if a contractor should fail to deliver to acceptable standards and have to be terminated or if a con­tractor has to withdraw because of strikes or bankruptcy. If a park and recreation agency has dissolved its own labor force, the service may have to be discontinued. Sometimes this concern is sufficient to persuade against contracting out. Contractors are usually required to post a perfor­mance bond, which is sufficient for an agency either to hire replacement labor and equipment or to purchase them from another contractor. This usually ranges from 5% to 1 5% of the contract's value. However, money availability does not help if alternative labor, equipment, or service sup­pliers cannot be acquired.

There are two ways that park and recreation agencies can plan for this contingency. First, re­sponsibility for service production may be con­tracted to several different suppliers. This is most common in large jurisdictions in which it is fea­sible and efficient to offer contracts in different geographical areas. For example, in Indianapolis, the city's 12 golf courses were contracted out to 12 different operators. If failure by any one operator occurred, then the service could be assumed by one of the other contractors by expanding its operations to the course not served. Similarly, Kansas City divided the 3, 100 acres of parks that it contracted for mowing services into 50-acre seg­ments, and it limited the number of segments that a contractor could mow to three. The parks super­intendent noted: "It can be cumbersome when you're looking at 20 different contractors, but we're very comfortable with it. If we get a contrac­tor who is not doing well, then I only have to worry about that 1 50 acres" (p. 20) . 7

Market strength -3 -2 -1 + 1 +2 +3

+ Pol it ical resi stance -3 -2 -1 + 1 +2 +3

$ Cost effic iency -3 -2 -1 + 1 +2 +3

* Qual ity of service -3 -2 -1 + 1 +2 +3

tttt I mpact on employees -3 -2 -1 +1 +2 +3

Legal barriers -3 -2 -1 +1 +2 +3

Risk -3 -2 -1 + 1 +2 +3

Resou rces -3 -2 -1 + 1 +2 +3

Control -3 -2 -1 + 1 +2 +3

Department ______________ _ Compos ite score ____________ _

Program/activ ity ____________ _ Eva l uator---------------

Figure 9.4 A tool used to summarize the pros and cons of contract ing out.

243

244 Financing and Acquiring Park and Recreation Resources

In the context of recreational classes , one man­ager articulated to the author another reason why some agencies prefer to contract with multiple instructors to teach in a given activity area:

We have learned over the years never to give one type of class to only one instructor be­cause he or she may put a fence around it and march off with it and all the students. For example, a ballet instructor may develop a good class over time, build up a cadre of loyal followers, and then go private with the class, by-passing the agency. The agency loses momentum and struggles to recreate a viable option for the few remaining students and for newcomers. Thus, we prefer to contract with several ballet instructors who teach one or two sections each, rather than with one in­structor who teaches all of them.8

An alternative approach to safeguard against contract failure is for an agency to engage in partial contracting, whereby it shares delivery with contractors both to inject competition into the process and to protect against service failure. This can be used when it is not feasible or eco­nomically efficient to use more than one contrac­tor. It also has the advantage of enabling the agency's personnel to retain a feel for the service that may be lost when there is no direct contact with it. There are various modifications of this option. Thus, an agency could retain a limited amount of equipment and cross-train employees so that they could partially fill the gap if service is interrupted.

A second modification is for the park and recre­ation agency to retain ownership of some or all of the capital equipment (e.g., vehicles, mowers) needed for a service and to lease this equipment to the contractor. A third modification is to structure the contract to permit an agency to take over equipment in the event of a default. If the agency had to take a service back from a contractor, it then would need only to provide employees for it to be functionat .9

C ontract failure may extend beyond failure in service delivery to embrace failure to garner long-term efficiencies . This occurs with low ball­ing, which means that a business may make an unrealistically low bid to obtain a contract, know­ing that it will lose money in the short term. If an agency removes all of its own service c apacity after the c ontract has been won, the contractor may be the only entity with experience in pro­ducing the service . Having achieved this domi-

nant status and gotten the agency dependent on its expertise, the contractor then substantially raises the bid when the contract comes up for renewal. This strategy c an only work if there is no effective competition from the agency or other c ontractors .

Selecting the Invitation-to-Bid or Request-for-Proposals Approach

Two approaches are available for selecting con­tractors. The invitation to bid is usually preferred when a service can be defined precisely and sev­eral potential contractors are available. The focus of this approach is cost reduction, and the con­tract is awarded to the lowest bidder. The invita­tion to bid will include items such as statements about bidder qualifications, service specifications, place for the official bid and price, and information about deposits or performance bonds that may be required. lt will s pecify when and where the sealed bids will be opened, and an agency generally is required to accept the lowest bid unless there are good reasons for not doing so.

The request for proposals is an alternative approach that tends to be used when the service cannot be defined easily and differences in service type, level, or quality are possible. Typically, the agency specifies the basic tasks it wants done, and the request for proposals allows bidders the option of suggesting improvements that will en­hance service delivery by incorporating elements or methods that the agency did not consider. It provides flexibility for an agency and compet ing contractors to be creative in designing the opera­tion and any improvements to the service under consideration. For example, when contracting recreation services , an agency may want poten­tial contractors to propose the activity mix that they can provide or believe will best meet the community's needs. The agency is not locked into having to accept the lowest bidder. It is a negotiated approach whereby both parties en­gage in disc ussion about range of service, s peci­fications , costs, and other elements . Usually evalu­a t i on of a req u e s t for p ropos als is more comprehensive than us ing only the cost crite­rion. For example, the illustration in "Evaluating Request for Proposals to Manage lndianapolis' Golf Courses " on page 246 indicates that the evaluation of request for proposals to operate Indianapolis' golf courses weighted net income to the city at 50% and seven nonrevenue criteria at 50% in the final decision.

TYpes of Payment Option The three methods of paying for contracted serM vices that park and recreation agencies use most frequently include firm fixed-price, commission, and fixed-price-with-incentives contracts.

In firm fixed-price contracts, contractors quote a single price for performing a service. They are responsible for any cost overruns but benefit from any cost savings generated. The contract includes detailed specifications of the work to be done. For a contractor to make a profit, the service has to be produced efficiently within the quoted price. This type of contract usually is preferred for contract­ing park maintenance services. The mowing con­tracts developed by the Kansas City Division of Parks, which are described in the case study at the end of this chapter, were fixed-price contracts.

A commission contract is used for services that are profitable. It provides for a contractor to pay an agency a percentage of the contractor's gross receipts. The contractor pays all operating costs and collects all revenues. This type of contract typically is used for food and beverage conces­sions and for profitable services, such as golf. The advantages are that it removes financial risk to the agency, is relatively simple to audit, and removes the agency from responsibility for daily operating decisions. Potential contractors include the gross percentages that they are prepared to pay in the bid document. The example shown in figure 9.5 is adapted from the request for proposals used by the city of lndianapolis when it was selecting con­tractors for its golf courses.

Sometimes when profitable services are conM tracted out, an agency may use the contractor as a source of capital. For example, the request for proposals may require the contractor to construct and equip a golf club house or a food and beverage area at the facility, or it may require him or her even to do noncontract-related improvements, such as restroom facilities or interpretive dis­plays. This may be the only way that an agency can acquire resources for these improvements. How­ever, the contractor must earn a return on the investment. Thus, if the contract is used as a source of capital, then the commission percentage offered in the bids will be commensurately lower.

The primary purpose of contracting out is to improve cost efficiency. To optimize this, there should be incentive for performance improve­ments. Fixed-price-with-incentive contracts start with an agreed price for the service but provide the contractor with incentives to improve perfor­mance. For example, if the contract is for equip-

Contracting Out Services ���'

Contractor sha l l remit the fol lowing to the department: 1 . ___ % of thegross revenue received from greens

fees and pass surcharges at the go lf course.

2 . ___ % of the gross golf course revenue re-ceived from the renta l of go lf carts and pu l l carts .

3 . ___ % of the gross revenue received from the food and vending concessions at the golf course.

4. ___ % of the gross revenue received from the sale of al l merchandise, merchandise gift certificates, and gol f supplies sold in the go lf course pro shop.

5 . ___ % of the gross revenue from the operation of the driving range.

Figure 9.5 Compensation to the agency from a com­mission contract.

ment maintenance, the contractor's bid price will be for meeting the contract's specifications re­lated to elements, such as performance levels, downtime, and spare-part costs. If these specifica­tions are exceeded and result in cost savings or improvements in service quality, then the contrac­tor is eligible to receive additional payments. Some­times the agency and contractor will share the savings at an agreed ratio, for example, 40% to the contractor and 60% to the agency.

An emerging form of the fixed-price-with­incentives contract used in services such as con­cession operations, provides for the contractor to receive a management fee, which typically is stated as a percentage of gross receipts (while the incen­tive is stated as a percentage of net profits). The concessionaire supplies all personnel, supplies, and equipment, and the agency reimburses the concessionaire for those costs. The agency re­tains all profits after these costs and the incentive payment have been deducted. This formula en­ables the agency to retain relatively strong control of the service and to have input into the contractor's operation. This arrangement

eliminates the typical adversarial relation­ships found in so many contracts. Many times under commission contracts the agency makes demands that cost the contractors additional payroll or product cost. The agency makes these decisions for the overall good of the facility, but the contractor sees it as a negative financial influence to its profits while

246 Financing and Acquiring Park and Recreation Resources

Evaluating Req1.1est for Proposals to Manage lndianapolis' Golf Courses

Two sets of criteria w�re u sed to eva luate the request for proposal s to manage l ndian(lpoJis' go lf cou rses. !he fi rst category was revenue projectipns1 and th�se accounted for 50% o(the weight in the fi nal decis ion. The second set of criteria involved nonprke attri butes . These a lso accounted for 506/o ofthe weight iti the final decis ion. The sevei'rnonprice cdteria are described in this section .

Management skills were defined as the availability of effective management systems and methock appropriate to the successfu l management of the golf course. Potential contractors needed to provide evidence that they had a sufficient numb�r of competent . personnel with appropriate management sk i l ls . Examples of general gu id�lines for the evaluation of proposals incl uded the fol lowi ng:

• Is the management structure focused on meetihgthe c()ritracf requi remehts as outl ined i n the request for proposals?

• Is the organ ization's structure appropriate for this contract?

• How much da ily contactwill the professional have i nvolv ing operations?

• What qua l ity control measures for customer service identified ?

The second area, existing track record, referred to the potential contractor's . p revious record of completing work projects to the requ i red standard, on time, and with i n budget The general gu ide l i ne for th is eva luation was : . Based cm thei r ex isti ng track record, is the contractor li kely to perform sati sfactori ly foFthe duration of the contract?

.

Technical skills encompassed the competence of the personnel and the proposed contractor with particu lar regard to the i r sk i l ls and experience i n com parable techn ical a teas. Techn ical ski l ls i nc l uded pro-shop operations, concession operations, course mai ntenance, operation experi­ence, equ ipment maintenance experience, and d riving range experience. Tech n i ca l ski l l s app l ied on ly to the proposed course personnel other than the professional ; management skills were not incl uded i n th i s category. General guide l i nes i nc l uded the fol lowing:

• What tech n ical ski l ls are deemed necessa ry for th is contract?

• Is the leve l of techn ical s ki l l sufficient to achieve the q ual ity req u i red?

• Is there confidence in the proposed personnel ?

• If sk i l l s are barely sufficient, can they be improved by cross-tra i n i ng with i n the contractor's organ ization ?

Resources i nc l uded the equ i pment ava i lable, the fac i l it ies, a n d golf cou rse property that the contractor proposed to use. Subcontractors identified as be i ng used for the contractual work were considered resources ava i lable to the contractor. General gu ide l i nes i nc luded the fol lowi ng :

• Does the contract propose the correct a n d suffic ient amount of suppl ies a n d equ i pment to u ndertake the work?

• I s the proposed fac i l ity adeq uate enough to prov ide the req u i red serv ices ?

• Are the proposed l abor resources suffic ient to cover the go lf course and the responsi b i l ities descri bed for i t in the req uest for proposal s ? (Judgment and productivity levels shou ld be avoided .)

• Are adequate fi nancia l resources proposed to operate the cou rse?

Relevant experience referred to the potential contractor's previous experi ence in contract works of com parab le scale and content. lt spec if ica l l y related to the person's or company's experience i n managi ng golf cou rses. General gu i del i nes i nc l uded the fo l lowi ng:

still having to pay the same commissions to the agency (p. 2 17) .2

Size and Scope of Contract The size and scope of contracts range widely, but they can be classified generally into four catego­ries .9 First, facility-based contracts cover all op­erational aspects of a facility and its immediate surrounds or of specific activities within the facil­ity. Second, activity-based contracts relate to a specific activity that can be contracted out at one or more sites . For example, an agency could contract out catering operations at six of its recreational facilities . The third category is area­based contracts that cover park and recreation services delivered within a specified geographic area. Small contractors and non profit and commu­nity organizations are more likely to bid on area-

Contracting Out Services ,:147

based contracts than on contracts requiring ser­vices to be delivered throughout the whole juris­diction. The Kansas City mowing contracts dis­cussed earlier in this section were of this type. The final category is comprehensive contracts that cover a large number or all services offered by an agency. "Contracting Out the Operation of all Park and Recreation Services in Ingersoll, Ontario" de­scribes a contract of this type.

Contract Content Detailed discussion of a contract's content is be­yond the scope of this text and will vary according to the particular service involved and state and local laws. However, the template shown in "Typi­cal Content of a Contract for Park and Recreation Services" illustrates the type of items included in a typical contract.

248 Financing and Acquiring Park and Recreation Resources

Developing documentation, seeking contrac­tors, and evaluating bids takes a considerable amount of time and effort . Although much de­pends on the systems and procedures in place within each agency, the checklist of tasks and associated times given in table 9. 1 provides an indication of the timeframe needed and the com­plexity of the contracting-out process.

Monitoring the Contractor's Performance

In figure 9. 1 monitoring is shown as the final stage in the contracting-out decision process. If the developed contract is too complex or vague for the contracted work to be monitored effectively with the resources that the agency has available,

Contr�cting '()ut · the Operatio11 of all Park a;nd Recreation Services ip lnger$o�l, Ontario

lngersol lhas a populatip� of9 ,600 and is l ocated lOOrni west.bfToront� . th'f:!town. had 4JO�year­old aren� with an ice pad and an auditorium. I� maintaineg .approximatelyJ 00 acres of pass ive and actiVe park

.land, which indvded several soccer pitches; seven basebal l diamonds (four of

which were l .ighted), andtwo outdoor tennis o!>utts. More ret::ently, the .<::ouncH c6n$tructed a $3, 7 million i ndoor leisure pool and fitness center called the Victoria Bci��k Commun.i.ty Centre.

A vocal group who opposed the decis ion to bu Hd the. Vktori(l Park Community Centre continued to attack the Jngersoll Park and Recreation Department's operati(? n ofit after the center opened because the agency's budget increased suhstantial ly with the needto �taffthe oew faci l ity. I n response to this pressure, the town a.ccepted a .proposa.l frqm RecreationServices International Inc. to take responsibility for m�naging al l of th� department's services for a five-year peri()d at an annual cost savi ng Qf$� �s,ooo to the town. H ighlights of the agreement included the fol l owing:

• The operator as�umed total control of the m,ttnagernent�:md operation of the arena, parks, and the Victoria. Park Commun ity Centre.

• The operator assumed all employees, the col fectivebarg(Jlin ing agreernent, and al l outstand­i ng grievances. Ihere were three grievances, i ncluding a partiaHycompleted arbitration hearing.

· ·

• The town mai ntained ownership of al l faci lities and equipment. • The town was responsible for capital repai rs to bui ld ings and capital replacement of

equ ipment. • The operator was responsible for a l l normat equiprn��t and bu ild ing maintenance. • The operator was requi red to obta i n coundl approval :tq make improvements, renovations,

or additions to faci l ities. · ·

• The operator was requ i red to obtain counCi l approval to increase user fees or to rea llocate ke time for youth hockey or figure skating,

• The operator was to maintain the l evel ofrnai ntenance and service that the town previously provided .

• The operator received a l l revenue and paid all accounts. • The operator· posted a performance bond for $ 1 00,000 .for the term of the contract.

Although th�re w�re : i nitial concerns by usEir ?roups about a lack of public consultation and potential . for dedi nes )n service and mai ntenanpe, there · were no major complaints after the contractW(lS implemif]ted.Hemsthat were not considered in the initia l negotiation or that required clarification were r��olvedamiably. The operator aided this transitiO!l. by appoi nting the town's former parks and arehadirector �s its manager �r)d by retaining al I' other managementR€rsonnel . This helped ensure>tl goqd relationship with the town, which was exemplified by the operator's manager attendi ng · meetings· of the town's sen ior . management team.

then a contract should probably not be consum� mated. Although responsibility for producing a service can be contracted, accountability for its quality always remains with the park and recre� ation agency. If a contractor performs poorly, the public rightly will blame the agency and expect it to restore service quality. Indeed, citizens and users of the service are unlikely to differentiate between the agency's employees and the con� tractor's employees. In essence, this means that if the contractor fails, the agency fails. Hence, when the contractor starts work, the agency's parallel monitoring role commences.

Contracting Out Services 2�9-

Good contract management embraces regu­larly inspecting the contractor's work to ensure performance standards are being met, negotiat­ing modifications to the contract if both parties recognize these are necessary, and terminating the contract if performance quality is unsatisfac­tory. The two most frequently noted problems with contracting out are contractor unreliability and the difficulty of monitoring contracts: "These two problems may be but two sides of the same coin, since unreliable contractors may simply be contractors who anticipate weak monitoring" (p. 48) .4

25() Financing and Acquiring Park and Recreation Resources

Table 9. 1 Tasks and Times Required for the Steps iu -the Contracting-Out Process Once a Decision to Proceed Has Been Made

Time Task required

Develop strategic plan and timetable 4 weeks

Draft the contract 4- 1 0 weeks

Produce the specification 8-20 weeks

Prepare the Request for Proposals 1 -2 weeks (RFP)

Produce tendering instructions 1-2 weeks

Produce an information package for bidders

Advertise the request for bids

Prepare for and conduct bidders' meeting and site meeting

Receive proposals

Evaluate proposals

Research proponents' financial status and seek technical reference

Short-list the best proponents

2-4 weeks

1-2 weeks

2-4 weeks

3-6 weeks

3-5 weeks

2-4 weeks

1-2 weeks

Interview the short-listed proponents 2-3 weeks

Select the best proponent 1-2 weeks

Negotiate final details 1-2 weeks

Sign the contract 1-2 weeks

Implement the contract and N/ A monitor compliance

Many of these tasks can be undertaken simultaneously. How­

ever, the process is complicated and is likely to take between

25 and 40 weeks to complete .

The contractor should be regarded as a partner and not as the enemy. An adversarial perspective is likely to be counterproductive to both parties. Feedback is as important to contractors as it is to the agency, for without it they do not know if the agency considers the service to be of high or low quality. Good communication is crucial, particu­larly during the first few months. The communica-

tion process starts at the pre-bid conference to which all interested qualified bidders are invited for the purpose of clarifying the agency's intent in the contract and identifying potential problem areas. This meeting typically will be conducted by the personnel responsible for monitoring the contractor's performance.

Ironically, scarcity of resources, a prime stimu­lus for contracting out, also contributes to reduc­ing its potential by inhibiting monitoring. Monitor­ing is not free. Even a relatively sketchy and incomplete effort involves expenditure of time and resources . The imperatives of day-to-day operations often push monitoring aside. Park and recreation agencies face continuing dilemmas of reducing services to clients or reducing adminis­trative costs. The latter are the first to be reduced, restricting the resources available for monitoring.

Wide variation exists in estimates of monitoring costs, but a reviewer of these estimates concluded:

Assuming that the cost of contract adminis­tration is considered separately from moni­toring, a crude estimate of monitoring costs is from 5 to 10 percent of the contract cost. Accurate monitoring of cost estimates would require at least rudimentary cost account­ing, and most jurisdictions have no desire or intention to do such cost accounting (p. 96) .4

The key to effective monitoring is to write spe-cific performance standards into the contract so that both sides know the evaluation criteria to be used. The performance standards should be per­formance or output oriented when possible rather than task or input oriented. For example, in a tree­trimming or park-mowing contract, the specified standards should be outputs in terms of number of trees trimmed and acres mowed in a given time period rather than inputs , such as number of hours worked and extent of equipment used.

Four types of monitoring may be used. The challenge is to select the combination of ap­proaches that will provide the most information given the resources available. The first approach involves reviewing cont ractors ' reports and records that describe work undertaken during the previous time period. Agencies typically require contractors to provide regular reports-often monthly-that address the following issues:

• Attendance figures (by activity or by area)

• Number of programs or activities conducted

• Complaints and actions taken to resolve them

• Problems and solutions

• Revenue (by activity, by day, or by week)

• Expenditure (by activity or by cost center)

• Noteworthy events or activities

• Forthcoming events or activities

• Seasonal phenomena, such as Christmas, or spring preparation of sports fields9

In addition to these regular reports, the agency should review periodically the following:

• Plant maintenance records

• Cleaning schedules

• Staff attendance records (who worked and when)

• Preventive maintenance records

• Activity attendance sheets

• Reports of fire drills, fire inspections, and health inspections

• Complaint registers

• Program schedules

• Records of users' attendance9

The frequency with which an agency reviews records is likely to decline as the contract progresses and trust is established.

A second monitoring mechanism is to review complaints. Effort should be made to communi­cate to citizens where to send complaints. They may go either to the agency or to the contractor, but each party must promptly inform the other about them. The contractor must have a system in place to ensure that they are processed sp�edily and that citizens are notified of the actions taken, and the agency needs to monitor how quickly and how well they are addressed.

Some agencies do not engage in any other moni­toring, assuming that user complaints will ensure performance. This is fallacious. The absence of complaints cannot be interpreted as demonstrat­ing a high level of satisfaction because, as long as the service does not deteriorate below some mini­mal satisfaction level, many people will not make an effort to comment. Indeed, most dissatisfied people do not complain. Instead, they either quit using the service or use an alternative service if one is available. However, they do tell their friends of their dissatisfaction; therefore, negative word of mouth about the park and recreation agency disseminates through the community, and because no complaint was made, the agency remains un-

Contracting Out Services 251

aware of it! Hence, aggressive, proactive monitor­ing is needed more than a reliance on processing complaints.

Inspection of work, which may be done with or without a contractor's knowledge, is a third moni­toring approach. These inspections usually in­clude a rating scale and form on which to note problems and comment on quality of service. A typical scale would be

A= work exceeds specification requirements;

8 = work meets specification requirements;

C work is only marginally satisfactory;

D = work does not meet specification require­ments ; and

E = work is unsatisfactory.

Some agencies use a mystery-shopper approach to inspections. For example, Indianapolis moni­tored its contracted golf courses by training a cadre of volunteer mystery shoppers who were experienced golfers and members of the Society of Retired Executives. There was no expense to the city. The volunteers inspected the courses while playing golf on them. When they handed in their completed inspection forms to the contract administrator, they were reimbursed their green and cart rental fees. Figure 9.6 and "Quality Stan­dards Graded From Eagle (2) to Triple Bogey (7)" show the rating forms that were used. The latter specifies the quality standards that were expected. Alongside each item, the mystery shopper golfers wrote a score using the scoring system shown at the bottom of figure 9.6. The ratings and com­ments were reviewed each week with the contrac­tor and a time period by which the problems would be resolved was agreed upon.

The final monitoring tool is surveys of users and citizens. Sampling procedures and how to develop survey instruments is beyond the scope of this text, but a note of caution is appropriate. Directly asking people what they think of the quality of a particular service often is not helpful. As long as their level of satisfaction is within some adequate range, 010st will answer posi­tively. A high percentage of favorable evaluations or satisfied responses does not necessarily re­flect a high level of satisfaction, only a lack of dissatisfaction. Indeed , clients almost always re­port high satisfaction and favorable evaluations even for ineffective programs. Only if the service becomes excessively bad are citizens likely to respond negatively to generalized questions.